When refinancing property that you already own, why do you have to pay closing costs?
If you already own the property why pay closing costs the same as for a new property?
That's a good question. The reason is that you still have to go through an approval process to verify that you are able to repay the new loan. When going through this process there are dozens of people who take your loan from the start to the closing table that get paid. The lender has to also pay third-party vendors like the credit report company, flood certification company, the appraisal company, the title company, as well as recording fees with the State and County. You also have to set up your prepaid items. Prepaid items include your property tax, homeowner's insurance, days of interest and reserves. Even if you are refinancing with the same lender you are currently with, there will be a new set of closing costs.
Now, there are several ways to pay closing costs. The most popular is a no-cost refinance, however there is never really a "no-cost" refinance. All that means is that there should be no cost to you at the closing table, but the costs will be added to your loan balance or paid by receiving a higher interest rate. Neither are bad ways to do it, it just depends on your specific situation and what option is best for your wants and needs. It is best to speak with a loan officer or two. After you pick someone, make sure you have great communication about what you want. Ask a lot of questions from him/her.
Best wishes, Sean | 04.11.16 @ 06:22
When refinancing, there are closing costs involved (new appraisal / title / escrow fee etc....are all required) ...there are ways to price the loan with a slightly higher rate so that you can avoid needing to pay these costs if you prefer not to pay the costs. | 04.12.16 @ 19:38
The process for a refinance is not all that different than for a purchase. Income must be analyzed, credit pulled, tax transcripts obtained and compared with the returns provided, home appraised, public records researched for liens on property, etc. In most cases new escrow accounts need to be set up, and in many cases, state taxes apply. The biggest difference between purchase and refinance transactions is that home buyers often purchase an owners title policy when closing, but that's not an option when refinancing.
Closing costs can be covered by bringing funds to closing, adding the costs to the loan balance, or using a lender credit to pay the costs. Many of my clients combine lenders' credit with bringing funds to closing in order to keep their new loan size the same as their old. Note that lenders credits apply when borrowers choose a slightly higher rate (making the loan more valuable to bond investors) rather than the lowest possible rate.
There is no "one size fits all" answer on the best way of handling closing costs. Every borrowers' situation is unique to them, which is why dealing with an experienced, capable loan originator is a key part of any mortgage.
Hope that helps, glad to assist if you have further questions. I write loans nationally. Ted | 04.12.16 @ 19:46